California suggests cap-and-trade to comply with Clean Power Plan

On 3 August 2016, California became the first state in the United States to publish its draft plan for compliance (based on an earlier discussion paper) with the Clean Power Plan (CPP). California intends to use its cap-and-trade program, with some proposed amendments, to meet its federally mandated CPP target of reducing emissions 13.2% by 2030 compared to 2020 levels. Under the CPP, which is scheduled to start its first compliance period in 2022, California has opted for the ‘states measures’ pathway. This allows states to develop and implement their own rules to achieve their CPP target. If accepted, California would rely on its cap-and-trade program, along with its energy efficiency and renewable energy standards, to meet its target. The ARB has also proposed a backstop provision for power plants should these policies fail to reach the CPP target. The mechanism would allow the ARB to reduce the emissions cap and create a pool of ‘backstop’ allowances, which can also be traded among the regulated entities. In any case, it is widely expected that California will easily reach its CPP target.

Even though implementation of the CPP is currently on hold, following a stay issued by the U.S. Supreme Court in February 2016 until the Washington D.C. Circuit Court has ruled on the legality of the CPP, many states are still developing options for CPP compliance. California intends to submit its draft plan once the stay has been lifted.

The draft compliance plan is open for public comment until 19 September. The California Air Resources Board (ARB) will also hold public meetings on its proposed amendments to its Cap-and-Trade program in September 2016 and expects to adopt these changes in 2017 (effective as of October 2017).